As reviewed in last week’s email/posts, the U.S. Supreme Court recently found that American Express’s ‘anti-steering’ rules did not violate U.S. antitrust law (in a decision reviewed here). In its judgment, the Supreme Court addressed a variety of topics essential to antitrust analysis – market definition, two-sided markets, harm through price effects and output effects, cross-market efficiencies and ancillary restraints – in ways which are at odds with the European approach. This paper, available here, seeks to compare the EU and US approaches in this respect. It is structured as follows: Section three contains a comparison of the AmEx majority and dissenting opinions. In the interest of clarity, I will review it here, instead of following the paper’s structure. In Ohio v American Express, the majority held that only one market should be defined in two-sided transaction markets. Because there is a single relevant market, cognisable harm must refer to net harm across merchants and cardholders. Even demonstrating that the benefits…

This is a UK judgment by the Court of Appeal concerning the correct approach to payment cards’ interchange fees. The decision was issued on appeal from three different lower court judgments that focused on whether the setting of default multilateral interchange fees (“MIFs”) within the MasterCard and Visa payment card systems amounted to an anticompetitive collusive practice. It is important to begin by describing the factual background of all these cases. Unlike American Express, or the card system at stake in the US Supreme Court judgment discussed above, MasterCard and Visa are four-party card schemes. Such schemes work as follows: a merchant accepts certain credit and debit cards pursuant to an agreement with an “Acquirer”, i.e. a bank or financial institution belonging to the MasterCard or VISA scheme. The card will have been issued by another bank belonging to the scheme (the ‘Issuer’). The Acquirer will charge a fee to the Merchant for the services it provided in respect of a…

Ohio v American Express involved the use of what are called “no steering” restraints, in which a retailer is not allowed to use a variety of tactics to steer a consumer away from using an American Express (“Amex”) card and towards using another payment mechanism, such as money or competing payment cards. The reason why a merchant might want to do this is because the cost that the merchant incurs when a customer uses an Amex card can be higher than when the customer uses another credit card, debit card or cash. Although not challenged in the case, the Amex contractual rules also prevent a retailer from imposing a surcharge on customers who use an Amex card to reflect the higher merchant cost. The contractual clause at stake in this case was a type of vertical most-favoured-nation (‘MFN’) restraint, i.e. a restraint in which one supplier tells a retailer that the retailer cannot set the retail price of its product…

This article, available here, argues, contrary to the arguments made in the piece above, that the Supreme Court decided the Ohio v American Express case correctly. Multisided platforms have distinct and critical features that set them apart from single-sided markets. Any prima facie antitrust assessment of competitive harm must incorporate the impact on consumers in all sides of a market regardless of market definition, and output effects should be the primary emphasis of any such competitive effects analysis. The paper is structured as follows: Section 2 identifies two broad schools of thought on market definition and competitive effects for multisided platforms. There is a divide among antitrust practitioners, courts, and economists regarding how multisided platforms should be assessed in antitrust investigations. A first school advocates for a separate effects and markets’ approach. Because users on different sides of a platform have different economic interests, it is inappropriate to view platform competition as being for a single-product offered at a single (i.e., net,…

This paper argues that the recent Supreme Court decision in American Express v Ohio is misguided. It is available here. Platform competition creates challenges for antitrust, but does not warrant the upheaval of the antitrust laws that the Supreme Court’s majority opinion prescribed. Instead, the traditional rule-of-reason approach is much better suited to deal with such cases. The paper is structured as follows: The paper begins by providing an overview of the distinctive features of platforms and platform competition, as reflected in the platform economics’ literature. There is no universally accepted definition of a two-sided platform, since multi-sidedness is a matter of degree. The economic literature identifies various types of platforms, such as: (a) transaction platforms, i.e. platforms that provide instrumental value by facilitating transactions between the two sides of a market; and (b) media platforms, where the two-sides of a platform comprise consumers of content and advertisers. It is sufficient here to describe a two-sided platform as a firm that (a)…

This paper, available here, looks at two questions regarding competition enforcement in platform markets: (i) how should one account for the distinct characteristics of platforms when defining an antitrust market; and (ii) how, if at all, should one weigh user groups’ gains and losses on different sides of a platform against one another. In short, the authors argue that enforcers and courts should use a multiple-markets approach to multisided platforms, in which different groups of users on different sides of a platform belong in different product markets. This approach allows one to account for cross-market network effects without collapsing all platform users into a single product market. They further argue that enforcers should consider the price structure of a platform, and not simply its net price, when assessing competitive effects. This justifies the use of a separate-effects analysis, according to which anticompetitive conduct harming users on one side of a platform cannot be justified just because that harm funds benefits for users…

A recent US Supreme Court decision is likely to have an impact on antitrust practice: Ohio v American Express 585 U. S. [to be determined] (2018), available here. In short, the case is about the correct antitrust treatment of anti-steering provisions introduced by American Express (Amex) into its contracts with merchants. The United States and several States (collectively, the plaintiffs) sued Amex, claiming that its anti-steering provisions violate §1 of the Sherman Act. The District Court agreed, finding that the credit-card market should be treated as two separate markets—one for merchants and one for cardholders—and that Amex’s anti-steering provisions are anticompetitive because they prevent competition in the merchant side of the market and results in higher merchant fees. The Second Circuit reversed; it determined that the credit-card market is a single market, not two separate ones; and that Amex’s anti-steering provisions did not infringe the Sherman Act. You may remember that I reviewed the Circuit court decision almost two years…

This case – which can be found here – concerns multilateral interchange fees (‘MIF’) yet again. This is one of a number of cases where courts had to decide whether such fees were lawful (for examples, see the cases reviewed in my posts of 30 September 2016, 10 February and 24 March 2017). This one, Sainsbury’s v Visa, is a decision about the lawfulness of Visa’s scheme. The case was brought under the shadow of decisions by the European Commission and a number of courts holding that MasterCard’s MIF scheme was unlawful. In order to understand this case, it is important to first understand how the various credit card systems operate. There are two main credit card models: On the one hand we have three-party schemes, like the ones operated by American Express and Dinner’s Club. In a three-party scheme, the operator (such as American Express) both issues cards and settles transactions with merchants. In other words, when an American…

This paper – which can be found here – provides an overview of the UK MasterCard litigation. Mr. Veljanowski is likely very well placed to discuss this: he was one of the two economic experts involved in a case recently decided by the CAT on the matter. He also seems to publish a paper about every court decision concerning the MasterCard litigation (see my post of 24 March 2017, regarding the Arcadia v MasterCard case). The paper begins with a quick overview of the MasterCard litigation. As a result of the European Commission’s MasterCard decision, there are currently about 25 separate standalone and follow-on retailer actions making their way through the English courts concerning MasterCard and Visa’s card systems’ interchange fees. The first decision in these cases was adopted by the CAT last year (Sainsbury v MasterCard). The second one was the Arcadia v MasterCard case I posted about on 10 February. There are also more recent decisions by the…

This decision – available here – concerns a standalone claim for damages against MasterCard brought before the English courts. As some of you will know, disputes over the legality of Multilateral Interchange Fees (MIFs) and various payment card-schemes has been ongoing for well over a decade. In the US, it included a decision on the legality of the American Express System which has found its way to the Supreme Court docket. In this case, which follows a decision by the European Commission – but is not a follow on claim since the practices in question, while similar, are not the same ones that were subject to the Commission’s decision – the English courts had to decide whether the level at which MasterCard set its MIFs was illegal, and hence whether damages are due. You may be pleased to hear that the decision is long and complicated – if nothing else, because it conducts an in-depth effects based assessment that hinges…